Verdict Pending Against Baidu.com In China’s First Anti-Monopoly Lawsuit

A Chinese court announced this week that a verdict is pending in a lawsuit brought in November 2008 against China’s top Internet search engine, Baidu.com Inc. (NASDAQ: BIDU). The company is accused of punishing an advertiser that reduced its ad spending on Baidu.com by altering its natural search results placement. Renren Information Service Co. (Chinese) claimed that Baidu’s actions violates China’s new Anti-Monopoly Law (only in effect since August 2008) by exhibiting behavior classified as abuse of its “dominant market position.” Renren is seeking CNY1.1 million (US$161,000) in damages.

According to Renren, in early 2007, the Hebei-based company launched qmyyw.com (now qmyy.com), a website with medical information and links to online medicine marketplaces. As part of its search engine marketing (SEM) program it agreed to purchase medical keywords from Baidu from March to September 2008 at a cost-per-click (CPC) of between CNY.55 (US$.08) to CNY3.8 (US$.56). As alleged in its lawsuit, Renren reduced its expenditures with Baidu beginning in July 2008 and almost immediately saw its site’s visibility plummet in Baidu searches. As an example, a search for the company on Google found 6,690 pages compared to only 4 on Baidu, a Renren official told the court. Baidu has denied the charges but were not immediately available for comment.

This separation of natural and paid search results has always represented a kind of Chinese Wall in the industry. Organic results are supposed to be based strictly on their relevance to the search terms as determined by a software algorithm. Whether an advertiser spends money to be listed among the paid results should have no bearing on whether it appears in the organic results. Losing this distinction would erode consumer’s confidence in the quality of the results being returned.

This lawsuit of course is not Baidu’s first run-in with the law. Other recent cases against the company have included:
– A suit requiring Baidu to remove paid search listings by unlicensed medical companies selling products of questionable legitimacy.

– Suits brought by major music distributors Sony Music (NYSE: SNE and TYO: 6758), Warner Music (NYSE: WMG) and Universal Music (EPA: VIV), accusing Baidu of driving traffic to illegal music download websites.

Comments (2)

Joe BlowApril 26th, 2009 at 8:22 pm

This article implies that Google do not participate in manipulating the page rank of corporate organisations that also pay for pay per click links, which is total bull. Of course Google also participate in these types of activities.

dougApril 27th, 2009 at 8:07 am

This report isn’t meant to imply anything about Google. It just highlights a relevant legal case against the search engine leader of China (with over 73% of in-country search traffic). As the number three global search engine and the dominant position in a country with the largest internet population, it is certainly worth noting what types of business practices are employed by Baidu.

While there have certainly been issues with how Google has sold and displayed their paid listings in the past, I am unaware of any accusations that the company has PUNISHED companies that don’t advertise with them by hiding their websites from lists of relevant search results. That is the type of conduct alleged in the Baidu case.